America could really, truly get infrastructure improvements soon

Remember all the hope and hype during the last presidential election about how the United States would soon spend a lot of money on infrastructure no matter who won? Four years later, we’re still waiting for Washington to take action.

But with many investors now betting that Joe Biden will defeat Trump – and some experts even pricing in the possibility of a blue wave that gives Democrats control of the Senate – a big infrastructure deal could have a better chance of getting done sometime next year.

That’s why shares of companies that specifically could benefit from an increase in infrastructure spending have surged lately.

The Invesco Dynamic Building & Construction ETF (PKB), a fund that has big building materials companies Martin Marietta Materials (MLM) and Vulcan Materials (VMC) as its top holdings, has soared nearly 15% in the past month and has shot up more than 30% in the past three months.

Downtown Los Angeles from the 2 Freeway on Saturday, May 2, 2020.

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“Investors have asked if construction materials strength reflects the market increasingly pricing in a ‘Blue Sweep’…that could make a comprehensive infrastructure program more likely in 2021,” said Citi analyst Anthony Pettinari in a report last week

Pettinari added that the economics team at Citi also thinks the optimism about a possible stimulus deal before next month’s election is boosting the sector. But that seems less likely to come to pass: A compromise between the Democratic leadership in the House, Senate Republicans and the White House have proven to be a tough sell in an election year. The House has actually already passed a $1.5 trillion infrastructure bill in July. But leading Republicans have indicated there’s no chance that the bill as currently written will be approved by the GOP-controlled Senate or signed into law by President Trump.

A need for more stimulus

The debate will continue about which types of infrastructure projects to which the government should allocate resources. Should they skew more toward classic blue-collar industrial projects like roads and bridges, or tech infrastructure such as 5G wireless networks?

Investors clearly think there is a decent chance that a new stimulus deal, whether it’s done within the next month or sometime in 2021, would be good news for many American companies.

That could be beneficial for industrial firms like Caterpillar (CAT), Deere (DE), Granite Construction (GVA) and Fluor (FLR), as well as tech firms and electric companies.

“Biden’s proposals to markedly increase federal infrastructure spending would lift demand for construction, telecoms and utilities,” said analysts at Moody’s in a recent report.

A view of downtown Los Angeles looking south along the 110 freeway through the smoke from the Bobcat and the El Dorado fires with poor air quality in Los Angeles on Friday, September 11, 2020. (Photo by Keith Birmingham/MediaNews Group/Pasadena Star-News via Getty Images)

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Experts also point out that any increase in infrastructure spending could help offset higher taxes that businesses might have to pay if Biden rolls back some of Trump’s tax cuts.

“Any tax hike would come in the context of additional spending measures,” said Jefferies economists Aneta Markowska and Thomas Simons in a report. “Biden has linked corporate tax increases to infrastructure and green energy investment, which would mitigate the impact on the industrial sector.”

The Jefferies economists estimated that Biden could call for $6 trillion in spending over the next decade, and that much of it would be front-loaded.

But a Trump re-election could also lead to a boost for infrastructure spending.

At a bare minimum, more states and local governments may look to invest more in infrastructure. Though Trump isn’t known as a proponent of green-energy policies, many other political leaders across the nation are.

“We see opportunities in private markets across renewables, digital infrastructure and transport regardless of the election result, given the structural shift to sustainability,” said analysts at BlackRock Investment Institute.

Trump, in a second term, could look to prioritize more stimulus in order to improve his economic track record – especially given the pandemic-fueled turmoil in the labor market.

More infrastructure projects could lead to a boost in jobs at a time when many Americans sorely need them.